c9h13no3
BattleForums Senior Member
Okay, I've noticed that this forum is pretty retarded. There are some bright spots, but they're the exception, not the rule. So instead of sitting back, and laughing at you guys like I normally do, I'm going to try to be somewhat constructive and do some educating. However, this is very uncharicteristic of me, so if I start telling you people how dumb you are in the middle of this post, don't be suprised.
Secondly, I feel somewhat entitled to make these educational posts on economics because I've had 2 classes in Micro and Macro Economics, so I feel a little bit more educated on the issue than say, your average joe.
Aight, lets get started with lesson #1, GDP, and the other associated numbers that go with it, including Gross Per Capita Income, and others.
Gross Domestic Product is a measure of all a nation's stuff generated in a year, and is determined by the formula:
GDP = Consumption + Investment + Government Purchases + Exports - Imports
And the units on the forumula are a particular currency, dollars for example.
Now lets talk about each of these terms for a second:
Consumption - Consumption is the goods and services people buy in a year. If you don't buy it, it's not counted as consumption. And sales of used items are not counted in the GDP, since they had already been sold previously.
Investment - This term describes the amount of money a person or corporation (which is a person legally) had put into new capital this year. This also includes buisnesses increasing their inventories. So for instance, if they did not sell a car one year, and they kept it, it would be counted as investment.
Government Purchases - Should be fairly simple. Stuff government buys (includes goods AND services).
Exports and Imports - No brainer here as well.
So when all this adds up, we get a pretty good idea of the price of the amount of goods and services that a country makes per year.
However, since the price of goods can go down or up (inflate or deflate), this can affect the GDP. Therefore, usually, when doing comparisons, a number called "Real GDP" is used.
"Real GDP" is calculated by another number called a "price index". A price index is the ratio of the value of a "market basket" of goods of one year, over the current year. Allow me to show you a simple example:
Lets say that our economy produces just 1 thing, Pizza. So, to find out the price index for the years 1990 to 2004, I would buy a pizza in 1990, and a pizza in 2004. If the price of the pizza in 2004 was 10$, and the price of the very same pizza in 1990 was 8$, then the price index from 1990 to 2004 would be:
Price Index = 10$ / 8$ = 1.25 (2004 dollars / 1990 dollars)
Of course, we make more than just pizza in the US, so to determine the price index of goods and services, you have to buy a "basket" or large sample of goods that we produce.
So that way, we can adjust for inflation or deflation in prices using this index. For example, if the GDP for the US was 10 dollars in 1990, and 20 dollars in 2004, and the price index was 1.25, we could use the price index to figure out how much our GDP had really increased, and how much was just inflation.
Calculation is done like so:
20 (2004 dollars) / 1.25 (2004 dollars / 1990 dollars = 16 1990 dollars
So, the GDP actually increased by 6 1990 dollars.
Hope that makes sense.
And now, for the real measure of economic prosperity that I prefer, Real GDP Per Capita.
Real GDP per Capita is a measure of how much stuff each particular person produces, and is a good measure for the Standard of Living.
The Real GDP per Capita is calculated by taking the Real GDP and dividing by the country's population.
In 2003, the GDP per Capita of the United States was $34,960 (1999 Dollars) (Source), making us one of the more prosperous countries in the world.
And now I'm spent. Hopefully that will hold you guys over until next time, when I will probably write about supply and demand and taxes.
Secondly, I feel somewhat entitled to make these educational posts on economics because I've had 2 classes in Micro and Macro Economics, so I feel a little bit more educated on the issue than say, your average joe.
Aight, lets get started with lesson #1, GDP, and the other associated numbers that go with it, including Gross Per Capita Income, and others.
Gross Domestic Product is a measure of all a nation's stuff generated in a year, and is determined by the formula:
GDP = Consumption + Investment + Government Purchases + Exports - Imports
And the units on the forumula are a particular currency, dollars for example.
Now lets talk about each of these terms for a second:
Consumption - Consumption is the goods and services people buy in a year. If you don't buy it, it's not counted as consumption. And sales of used items are not counted in the GDP, since they had already been sold previously.
Investment - This term describes the amount of money a person or corporation (which is a person legally) had put into new capital this year. This also includes buisnesses increasing their inventories. So for instance, if they did not sell a car one year, and they kept it, it would be counted as investment.
Government Purchases - Should be fairly simple. Stuff government buys (includes goods AND services).
Exports and Imports - No brainer here as well.
So when all this adds up, we get a pretty good idea of the price of the amount of goods and services that a country makes per year.
However, since the price of goods can go down or up (inflate or deflate), this can affect the GDP. Therefore, usually, when doing comparisons, a number called "Real GDP" is used.
"Real GDP" is calculated by another number called a "price index". A price index is the ratio of the value of a "market basket" of goods of one year, over the current year. Allow me to show you a simple example:
Lets say that our economy produces just 1 thing, Pizza. So, to find out the price index for the years 1990 to 2004, I would buy a pizza in 1990, and a pizza in 2004. If the price of the pizza in 2004 was 10$, and the price of the very same pizza in 1990 was 8$, then the price index from 1990 to 2004 would be:
Price Index = 10$ / 8$ = 1.25 (2004 dollars / 1990 dollars)
Of course, we make more than just pizza in the US, so to determine the price index of goods and services, you have to buy a "basket" or large sample of goods that we produce.
So that way, we can adjust for inflation or deflation in prices using this index. For example, if the GDP for the US was 10 dollars in 1990, and 20 dollars in 2004, and the price index was 1.25, we could use the price index to figure out how much our GDP had really increased, and how much was just inflation.
Calculation is done like so:
20 (2004 dollars) / 1.25 (2004 dollars / 1990 dollars = 16 1990 dollars
So, the GDP actually increased by 6 1990 dollars.
Hope that makes sense.
And now, for the real measure of economic prosperity that I prefer, Real GDP Per Capita.
Real GDP per Capita is a measure of how much stuff each particular person produces, and is a good measure for the Standard of Living.
The Real GDP per Capita is calculated by taking the Real GDP and dividing by the country's population.
In 2003, the GDP per Capita of the United States was $34,960 (1999 Dollars) (Source), making us one of the more prosperous countries in the world.
And now I'm spent. Hopefully that will hold you guys over until next time, when I will probably write about supply and demand and taxes.
